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P r o p r i e t a r y a n d C o p y r i g h t o f T h e D e s c a r t e s S y s t e m s G r o u p I n c . A l l r i g h t s r e s e r v e d .
Descartes – Uniting Business in Commerce
M a y 2 0 2 0
Safe Harbor StatementCertain statements to be made today and in this presentation, and that may be made in response to questions, constitute forward-looking information for the purposes of applicable securities laws (“forward-lookingstatements”), including, but not limited to: statements using the words “believe,” “plan,” “expect,” “anticipate,” “intend,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions; orstatements in relation to any of the following topics: our assessment of the current and future potential impact of the COVID-19 pandemic on our business, results of operations and financial condition; addressing economicuncertainty; investment in areas of our business with high strategic value and growth potential; our future operating performance; software-as-a-service business model; strategy, market opportunity and vision; ourposition and opportunity to lead our industry with our business model; solution functionality and benefits derived therefrom; network penetration; ability to complete acquisitions and contribution of completedacquisitions to our operations; anticipated churn in revenues; and competition.
The material assumptions made in making these forward-looking statements include, but are not limited to, the following: global shipment volumes continuing to increase at levels consistent with those experiencedhistorically; the current COVID-19 pandemic not having a material impact on shipment volumes or on the demand for the products and services of Descartes by its customers and the ability of those customers to continueto pay for those products and services; countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports;countries continuing to implement and enforce existing and additional trade restrictions and sanctioned party lists with respect to doing business with certain countries, organizations, entities and individuals; our continuedoperation of a secure and reliable business network; the stability of general economic and market conditions, currency exchange rates, and interest rates; equity and debt markets continuing to provide us with access tocapital; our continued ability to identify and source attractive and executable business combination opportunities; our ability to develop solutions that keep pace with the continuing changes in technology, and ourcontinued compliance with third party intellectual property rights. While management believes these assumptions to be reasonable under the circumstances, they may prove to be inaccurate.
These forward-looking statements are also subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are notlimited to: our ability to identify and successfully integrate acquired businesses; the impact of network failures, information security breaches or other cyber-security threats, disruptions in the movement of freight and adecline in shipment volumes including as a result of contagious illness outbreaks such as the current COVID-19 pandemic, a deterioration of general economic conditions or instability in the financial markets accompaniedby a decrease in spending by our customers; departures of key customers; the ability to attract and retain key personnel and transition when key personnel depart; variances in our revenues from quarter to quarter;fluctuations in international currency exchange rates; exposure to greater than anticipated tax liabilities; changes in electronic customs filing regulations and other factors discussed under the headings “Risk Factors” or“Certain Factors That May Affect Future Results” in documents filed with applicable securities regulatory authorities under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, including the documentsincorporated by reference into such documents. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of ourcommon shares could decline, perhaps materially.
We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. You are cautioned that such information may not beappropriate for other purposes. In particular, we have not adjusted or revised any forward-looking statements in this presentation to account for the potential disruption to our business from the recent coronavirusoutbreak, the impact from which is not immediately known or quantifiable. Except as required by law, we do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to anyforward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based.
2
Investment Highlights
Automating and Optimizing the Increasingly Complex Logistics Market
Disciplined M&A Strategy
Highly-Experienced Management Team
Proven Record of Financial Success
Strong Market Position with Significant Competitive Barriers
World’s Largest Multi-Modal and Neutral Logistics Network
Cloud-Based Software Applications and Data Content
3
Descartes at a Glance Leader in providing SaaS solutions for logistics-intensive
businesses Global presence in Canada, US, EMEA, APAC and
South America ~1,500 employees Proven ‘Total Growth’ model supported by disciplined
acquisition strategy High-recurring revenue profile Delivering profitable growth and free cash flow
generation
(1) See Reconciliation of Non-GAAP Financial Measures on slides 20 and 21 for our approach to reconciliation of adjusted EBITDA.
4
40 million +Routes
Managed / Year
160 +Countries
Served
18.6 billion +Messages
Processed / Year
20,000 +CustomersWorldwide
26.9 31.3 37.0
80.8 93.9
122.6
FY18 FY19 FY20
Net Income & Adj. EBITDA (US$ millions)(1)
Net Income Adj. EBITDA
237
275
326
FY18 FY19 FY20
Revenues (US$ millions)
Forwarders& 3PLs
CustomsBrokers
FreightBrokers
Customs Regulators Associations
Ocean Air Ground RailRetailers Service
ProvidersManufacturers & Distributors
C A R R I E R S S H I P P E R S
G O V E R N M E N T S I N T E R M E D I A R I E SD E S C A R T E SG L N ™
5
Descartes’ Global Logistics Network
Routing, Mobile & Telematics
TransportationManagement
Ecommerce, Shipping& Fulfillment
Customs & Regulatory Compliance
D E S C A R T E S G L N ™
Global Trade Intelligence Broker & Forwarder
Enterprise Systems
6
Subscription or license based on
number of vehicles
Subscription and per transaction fee based on number
of shipmentsSubscription and
per transaction fee based on number of
regulatory filings
Subscription based on number of
seats
Subscription based on number of
countries and type of trade content
Subscription and per transaction fee based on number
of shipments
Descartes’ Broad Array of Logistics Management Solutions
MA N U FAC TU R ERS
A IR
TR U CK
R ETA IL ERS
D ISTR IBU TORS
IN TER MED IA R IES
OCEA N
Industry-Leading Customers
7
Leverages Descartes’ Advanced Home Delivery solution for:
Real-time delivery appointment scheduling
Route optimization and execution
Mobile resource management solutions
Leverages many Descartes solutions across multiple DHL operating groups:
Global Forwarding
DHL Express (Parcels)
Logistics and supply chain management
Descartes’ solutions help Delta Airlines meet a growing number of logistic challenges across the globe:
Numerous country-specific customs and security filings
Provide cargo tracking and ULD global visibility solutions
Operate air messaging network for Delta and its logistics partners
Customer Case Studies
8
Why We Win
9
Pure play logistics technology provider with compelling combination of network, applications and data content
Multi-modal
Global
NeutralNetwork
Market Drivers and Opportunities
10
• Global Logistics Network (“GLN”) offers operational excellence, increased digitization of freight and higher precision through cloud integration and automation
Cloud Enables Increasing Automation
• Heightened regulatory compliance requirements and shifting global trade patterns create favorable tailwinds
Global Trade Becoming More Complex
• Real-time tracking and optimization made possible by ubiquitous mobile networks, internet-of-things and cloud-scale computing
Mobility Enables Real-time Optimization and Visibility
• Logistics and supply chain software markets remain highly fragmented, presenting a large consolidation opportunity
Highly Fragmented Industry
• Customs Info, MK Data, Datamyne and Visual Compliance acquisitions illustrative of the opportunity to leverage logistics and trade data content on the GLN
Content/Data Monetization
eCommerce and Final-mile Logistics
• Descartes solutions help retailers and logistics service providers respond to threat of Amazon, Google, eBay with real-time delivery route optimization and execution solutions
M&A is a Core Competency for Descartes
Descartes’ acquisition strategy is a key enabler of its ‘Total Growth’ model
Has completed 23 acquisitions since 2014 for a total consideration of ~US$ 815 million
Disciplined approach that is focused on complementary technologies, industry consolidation and close adjacencies across logistics
Core competency in sourcing, acquiring and integrating high quality assets
20172016 201820152014 2019 2020
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Recent Acquisition Success
Acquired February 2020 for ~£19mm (~$25mm)
Acquired February 2019 for ~$250mm Acquired February 2017 for ~$107mm
Cloud-based ecommerce warehouse management (eWMS) solution provider
Strengthens Descartes’ application footprint to help customers manage the full lifecycle of domestic and cross-border ecommerce shipments
Expands Descartes’ community of direct-to-consumer brands and omni-channel retailers
Cloud-based global trade data content provider
Adds scale to the GLN with additional denied party screening and trade compliance transactions
Strengthens Descartes’ domain expertise and toolset for collecting and distributing trade compliance content
Expands Descartes’ compliance application footprint for denied party screening and adds new trade compliance functionality
Electronic transportation network providing location-based truck tracking and predictive freight capacity data content
Extends the reach of the GLN through real-time connections with over 2 million trucking assets
Adds a large community of freight brokers, 3PLs, logistics service providers and market-leading shippers
12
Financial Overview
13
Financial Highlights
Strong and consistent revenue growth
Highly-recurring subscription and transaction-based revenue model
High-quality and diverse revenue profile
Continued margin expansion through cost control and operating efficiency
Robust cash generation and high conversion rates
Proven acquisition integration success and synergy achievement
14
$27 $31
$37
$7 $11
11.3% 11.4% 11.4%
9.4%13.1%
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%
$- $5
$10 $15 $20 $25 $30 $35 $40
FY18 FY19 FY20 Q1-20 Q1-21
Net Income and Net Income as a % of Revenues
Net Income Net Income Margin %
$72 $78
$104
$23 $28
FY18 FY19 FY20 Q1-20 Q1-21
Cash Flow from Operations
$81 $94
$123
$29 $33
34.0% 34.1%37.6%
36.8%
39.4%30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
$-
$20
$40
$60
$80
$100
$120
$140
FY18 FY19 FY20 Q1-20 Q1-21
Adjusted EBITDA(1) and Adjusted EBITDA as a % of Revenues(1)
Adj. EBITDA Adj. EBITDA Margin %
$237 $275
$326
$78 $84
FY18 FY19 FY20 Q1-20 Q1-21
Revenue
Strong and Consistent Growth
15(1) See Reconciliation of Non-GAAP Financial Measures on slides 20 and 21 for a reconciliation of adjusted EBITDA and adjusted EBITDA as a percentage of revenues to net income.
73% 73% 74% 74%
FY18 FY19 FY20 Q1-21
Gross Margin
Efficient and Disciplined Operating Model
16
14%13%
12%11%
FY18 FY19 FY20 Q1-21
Sales and Marketing
18%17%
16% 16%
FY18 FY19 FY20 Q1-21
Research and Development
11% 11% 11% 10%
FY18 FY19 FY20 Q1-21
General and Administrative
Capital Structure – April 30, 2020
• Common shares
• 84.2 million – Outstanding
• 84.2 million – Basic (weighted average)
• 85.5 million – Fully diluted (weighted average)
• Base-Shelf Prospectus filed on June 6, 2018 (up to $750 million – approximately $505 million unused)
• Cash and cash equivalents
• $US 56.0 million
• Acquisition line of credit
• $US 350.0 million with the potential to upsize to $US 500.0 million
• $US 9.7 million drawn as of April 30, 2020
17
Baseline Calibration
Baseline revenues = visible, contracted and recurring revenues at the beginning of each quarter. Baseline revenues is not a revenues projection as it excludes sales concluded in the period
Baseline Adjusted EBITDA = Baseline revenue lessoperating expenses (excluding investment income, interest expense, income tax expense, depreciation, amortization, stock-based compensation, restructuring expenses, acquisition related expenses and executive departure expenses)
(1) See Reconciliation of Non-GAAP Financial Measures on slides 20 and 21 for our approach to reconciliation of adjusted EBITDA.
Figures per Quarter Baseline Actual Actual % of Baseline
Q2’20 RevenueNet IncomeNet Income as a % of RevenuesAdj. EBITDAAdj. EBITDA % of Revenues
$76.0
$23.831.3%
$80.5$8.6
10.7%$30.237.5%
106%
127%
Q3’20 RevenueNet IncomeNet Income as a % of RevenuesAdj. EBITDAAdj. EBITDA % of Revenues
$78.2
$24.831.7%
$83.0$9.7
11.7%$31.538.0%
106%
127%
Q4’20 RevenueNet IncomeNet Income as a % of RevenuesAdj. EBITDAAdj. EBITDA % of Revenues
$79.3
$25.432.0%
$84.2$11.413.5%$32.238.2%
106%
127%
Q1’21 RevenueNet IncomeNet Income as a % of RevenuesAdj. EBITDAAdj. EBITDA % of Revenues
$81.3
$26.032.0%
$83.7$11.013.1%$33.039.4%
103%
127%
Q2’21 RevenueNet IncomeNet Income as a % of RevenuesAdj. EBITDAAdj. EBITDA % of Revenues
$77.0
$26.534.4%
18
Investment Highlights
Automating and Optimizing the Increasingly Complex Logistics Market
Disciplined M&A Strategy
Highly-Experienced Management Team
Proven Record of Financial Success
Strong Market Position with Significant Competitive Barriers
World’s Largest Multi-Modal and Neutral Logistics Network
Cloud-Based Software Applications and Data Content
19
Reconciliation of Non-GAAP Financial Measures - Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues – Q1-21
The table below reconciles Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues to netincome reported in our unaudited Consolidated Statements of Operations for Q1FY21, Q4FY20, Q3FY20,Q2FY20, and Q1FY20, which we believe is the most directly comparable GAAP measure.
We prepare and release quarterly unaudited and annual audited financial statements prepared inaccordance with GAAP. We also disclose and discuss certain non-GAAP financial information, used toevaluate our performance, in this and other earnings releases and investor conference calls as acomplement to results provided in accordance with GAAP. We believe that current shareholders andpotential investors in our company use non-GAAP financial measures, such as Adjusted EBITDA andAdjusted EBITDA as a percentage of revenues, in making investment decisions about our company andmeasuring our operational results.
The term “Adjusted EBITDA” refers to a financial measure that we define as earnings before certaincharges that management considers to be non-operating expenses and which consist of interest, taxes,depreciation, amortization, stock-based compensation (for which we include related fees and taxes) andother charges (for which we include restructuring charges and acquisition-related expenses). AdjustedEBITDA as a percentage of revenues divides Adjusted EBITDA for a period by the revenues for thecorresponding period and expresses the quotient as a percentage.
Management considers these non-operating expenses to be outside the scope of Descartes’ ongoingoperations and the related expenses are not used by management to measure operations. Accordingly,these expenses are excluded from Adjusted EBITDA, which we reference to both measure our operationsand as a basis of comparison of our operations from period-to-period. Management believes thatinvestors and financial analysts measure our business on the same basis, and we are providing theAdjusted EBITDA financial metric to assist in this evaluation and to provide a higher level of transparencyinto how we measure our own business. However, Adjusted EBITDA and Adjusted EBITDA as apercentage of revenues are non-GAAP financial measures and may not be comparable to similarly titledmeasures reported by other companies. Adjusted EBITDA and Adjusted EBITDA as a percentage ofrevenues should not be construed as a substitute for net income determined in accordance with GAAP orother non-GAAP measures that may be used by other companies, such as EBITDA. The use of AdjustedEBITDA and Adjusted EBITDA as a percentage of revenues does have limitations. In particular, we havecompleted five acquisitions since the beginning of fiscal 2020 and may complete additional acquisitionsin the future that will result in acquisition-related expenses and restructuring charges. As theseacquisition-related expenses and restructuring charges may continue as we pursue our consolidationstrategy, some investors may consider these charges and expenses as a recurring part of operationsrather than expenses that are not part of operations.
For more information on the reconciliation of Non-GAAP financial measures in the current period, pleaserefer to our press release dated May 27, 2020: https://www.descartes.com/who-we-are/news-events/financial-news. For more information on the reconciliation of Non-GAAP financial measures forprevious periods please refer to: https://www.descartes.com/who-we-are/investor-relations/financial-information
20
(US dollars in millions) Q1FY21 Q4FY20 Q3FY20 Q2FY20 Q1FY20Net income, as reported on Consolidated Statements of Operations 11.0 11.4 9.7 8.6 7.3Adjustments to reconcile to Adjusted EBITDA:
Interest expense 0.3 0.4 0.4 1.4 2.2Investment income - (0.1) - - (0.1)Income tax expense 4.4 1.9 3.5 3.1 2.5Depreciation expense 1.6 2.9 1.2 1.1 0.9Amortization of intangible assets 13.7 14.1 14.5 14.1 12.8Stock-based compensation and related taxes 1.2 1.3 1.4 1.3 1.0Other charges 0.8 0.3 0.8 0.6 2.1Adjusted EBITDA 33.0 32.2 31.5 30.2 28.7
Revenues 83.7 84.2 83.0 80.5 78.0Net income as % of revenues 13% 14% 12% 11% 9%Adjusted EBITDA as % of revenues 39% 38% 38% 38% 37%
Reconciliation of Non-GAAP Financial Measures - Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues – FY20
The table below reconciles Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues to netincome reported in our unaudited Consolidated Statements of Operations for Q4FY20, Q3FY20, Q2FY20,Q1FY20 and Q4FY19, which we believe is the most directly comparable GAAP measure.
We prepare and release quarterly unaudited and annual audited financial statements prepared inaccordance with GAAP. We also disclose and discuss certain non-GAAP financial information, used toevaluate our performance, in this and other earnings releases and investor conference calls as acomplement to results provided in accordance with GAAP. We believe that current shareholders andpotential investors in our company use non-GAAP financial measures, such as Adjusted EBITDA andAdjusted EBITDA as a percentage of revenues, in making investment decisions about our company andmeasuring our operational results.
The term “Adjusted EBITDA” refers to a financial measure that we define as earnings before certaincharges that management considers to be non-operating expenses and which consist of interest, taxes,depreciation, amortization, stock-based compensation (for which we include related fees and taxes) andother charges (for which we include restructuring charges and acquisition-related expenses). AdjustedEBITDA as a percentage of revenues divides Adjusted EBITDA for a period by the revenues for thecorresponding period and expresses the quotient as a percentage.
Management considers these non-operating expenses to be outside the scope of Descartes’ ongoingoperations and the related expenses are not used by management to measure operations. Accordingly,these expenses are excluded from Adjusted EBITDA, which we reference to both measure our operationsand as a basis of comparison of our operations from period-to-period. Management believes thatinvestors and financial analysts measure our business on the same basis, and we are providing theAdjusted EBITDA financial metric to assist in this evaluation and to provide a higher level of transparencyinto how we measure our own business. However, Adjusted EBITDA and Adjusted EBITDA as apercentage of revenues are non-GAAP financial measures and may not be comparable to similarly titledmeasures reported by other companies. Adjusted EBITDA and Adjusted EBITDA as a percentage ofrevenues should not be construed as a substitute for net income determined in accordance with GAAP orother non-GAAP measures that may be used by other companies, such as EBITDA. The use of AdjustedEBITDA and Adjusted EBITDA as a percentage of revenues does have limitations. In particular, we havecompleted five acquisitions since the beginning of fiscal 2020 and may complete additional acquisitionsin the future that will result in acquisition-related expenses and restructuring charges. As theseacquisition-related expenses and restructuring charges may continue as we pursue our consolidationstrategy, some investors may consider these charges and expenses as a recurring part of operationsrather than expenses that are not part of operations.
For more information on the reconciliation of Non-GAAP financial measures in the current period, pleaserefer to our press release dated March 4, 2020: https://www.descartes.com/who-we-are/news-events/financial-news. For more information on the reconciliation of Non-GAAP financial measures forprevious periods please refer to: https://www.descartes.com/who-we-are/investor-relations/financial-information
(US dollars in millions) FY20 FY19
Net income, as reported on Consolidated Statements of Operations 37.0 31.3
Adjustments to reconcile to Adjusted EBITDA:
Interest expense 4.4 2.1
Investment income (0.2) (0.2)
Income tax expense 11.1 8.2
Depreciation expense 6.0 4.5
Amortization of intangible assets 55.5 40.2
Stock-based compensation and related taxes 5.0 4.0
Other charges 3.8 3.8
Adjusted EBITDA 122.6 93.9
Revenues 325.8 275.1
Net income as % of revenues 11% 11%
Adjusted EBITDA as % of revenues 38% 34%
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